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2014/2015  KAN-CFSMO1113U  Risk Management

English Title
Risk Management

Course information

Language English
Course ECTS 7.5 ECTS
Type Mandatory
Level Full Degree Master
Duration One Semester
Course period Spring
Timetable Course schedule will be posted at calendar.cbs.dk
Study board
Study Board for MSc in Economics and Business Administration
Course coordinator
  • Jesper Lund - Department of Finance (FI)
Main academic disciplines
  • Finance
Last updated on 04-07-2014
Learning objectives
The aim of the course is to describe the risk management process from the perspective of financial institutions as the process by which various risk exposures are identified, measured, and controlled. Value-at-Risk is a quantitative risk management tool that has been developed to facilitate the assessment and communication of financial risks. The course offers a comprehensive presentation of theoretical as well as practical aspects underlying the measurement and application of Value-at-Risk.

The aim of the course is that students after having followed the course are able to:
  • Analyze and discuss the role of risk management in different financial institutions.
  • Construct hedging positions for financial instruments based on "greek" risk measures.
  • Calculate fixed-income risk measures such as duration for bond portfolios and use these for hedging decisions.
  • Apply and analyze Value-at-Risk concepts and related risk measures such as expected shortfall.
  • Calculate VaR risk measures for portfolios of stocks and financial derivatives with historical simulation and model-based approach.
  • Analyze and discuss the key concepts of the Basel rules (financial regulation).
  • Analyze and discuss basic credit risk modelling concepts.
  • Calculate values of credit-risky debt securities in the Merton model under different seniority assumptions.
  • Analyze and discuss the problems for risk management created by liquidity risk and model risk.
Risk Management:
Exam ECTS 7,5
Examination form Written sit-in exam
Individual or group exam Individual
Assignment type Written assignment
Duration 4 hours
Grading scale 7-step scale
Examiner(s) Internal examiner and external examiner
Exam period Spring Term
Aids allowed to bring to the exam Closed Book: no aids
Make-up exam/re-exam
Same examination form as the ordinary exam
If the number of registered candidates for the make-up examination/re-take examination warrants that it may most appropriately be held as an oral examination, the programme office will inform the students that the make-up examination/re-take examination will be held as an oral examination instead.
Description of the exam procedure
Individual 4-hour written exam. No technical nor written aids are allowed at the exams, except from Texas Instruments TI-30X IIS (solar), Texas Instruments TI-30X IIB (battery), TI-30X IIS/IIB, TI-30XS MultiView and TI-30XB MultiView calculators.
Course content and structure

The course will motivate and discuss the need for financial risk management in light of recent financial scandals and disasters and in relation to international capital adequacy requirements for banks and other financial institutions. As modern capital requirements rely increasingly on Value-at-Risk we will take a detailed look at this quantitative risk measurement tool. The course will go through all of the steps necessary for computing reliable Value-at-Risk numbers, e.g. parameter estimation, volatility modelling, back-testing, stress-testing, Monte Carlo and historical simulation techniques. Throughout the course we will give special attention to how derivative instruments can affect Value-of-Risk for portfolios and thus be actively used in the process of managing financial market risks. Credit risk and specific risk measures for interest-rate risk and option risk will also be covered in the course.

Teaching methods
Lectures with exercises.
Expected literature

Hull, John C. Risk Management and Financial Institutions. 3rdedition. Wiley 2012 (or later edition).

Last updated on 04-07-2014